Chapter 05 · Section 5.1

Combined Position

Hedging a Long Spot Position with a Long Put

             Long Spot     Long Put         Combined
             Position      Position          Position

Declining    practically   exercise           .....                         
prices:      unlimited                                  
             loss 

a) Unlimited loss potential.
• b) Limited loss potential.
  Yes. The long put position limits the loss potential of the combined position. It will be limited to the premium paid if, for example, the hedger decides to hedge with at-the-money puts. Continue

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